Shifting IP Battlegrounds in the U.S.-China Trade War
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JYH-AN LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
Shifting IP Battlegrounds in the U.S.–China Trade War
Jyh-An Lee*
ABSTRACT
Intellectual property (“IP”) represents one of the main controversies of U.S.–
China trade relations in the past three decades and remains one of the core issues
behind the two countries’ recent trade frictions. This Article provides an overview
of the current IP debates between the two largest economies in the world. It
illustrates the transformation of the Chinese government’s role from inactive IP law
enforcer to active facilitator of access to and acquisition of foreign technologies.
This study further explains how China’s approach to learning western technologies
has transformed from low-end imitation to gaining a controlling stake in foreign
companies via joint ventures or outbound investments. More importantly, this
Article discusses the legal and policy implications of the IP issues in this trade war.
I argue that the recent IP trade war represents the struggle for global technological
leadership as well as a new institutional competition in the post-Cold War era.
Moreover, China’s “economic aggression,” as the United States understands it, has
caused a number of unsolved issues for the international IP regime, which include
the justification of China’s controversial IP policies for the purpose of industrial
catch-up as well as the evidentiary and legal bases for holding China liable for its
economic aggression in relation to IP.
* Associate Professor, The Chinese University of Hong Kong Faculty of Law. Earlier versions
of this Article were presented at the 2d U.S.–China IP Summit co-held by the Renmin University of China
Intellectual Property Academy and Global Innovation Policy Center of the U.S. Chamber of Commerce
in Shenzhen, Faculty Research Seminar at the Institutum Iurisprudentiae, Academia Sinica (IIAS), the
International Vision Speaker Series held by the Taipei Bar Association in Taiwan, the 11th IP
Conference—Best Practices in Turbulent Times and the Workshop on Beyond Goods: Trade in Services
and Investment in a Climate of Trade Protectionism at the Chinese University of Hong Kong Faculty of
Law, the Staff Seminar at the City University of Hong Kong School of Law, and the 2019 Intellectual
Property Scholars Conference (IPSC) at DePaul University College of Law. The author would like to
thank participants of these events, in particular Ngoc Son Bui, Albert Wai-Kit Chan, Yun-chien Chang,
Dongmin Chen, Po-Liang Chen, Wen-Tsong Chiou, Mark Cohen, Wenwei Guan, Jimmy Chia-Shin Hsu,
David Kappos, Eugene Lim, Antoine Martin, Simon Lacey, Chien-Liang Lee, Yu-Hsin Lin, Xiuqin Lin,
Chuntain Liu, Kung-Chung Liu, Matt Liu, Xuehong Liu, Lisa Macklem, Bryan Mercurio, Elena
Sherstoboeva, Ebele Angela Onyeabo, De-Jen Peng, Dini Sejko, Grace Shao, Helen Huilun Su, Cheng
Han Tan, Michael Tsimplis, Runhua Wang, Tzung-Mou Wu, Joy Xiang, Chunyan Ding, and Peter Yu for
valuable comments and suggestions. Also thanks to Yangzi Li and Jingwen Liu for their research
assistance. Last but not least, I thank editors of the Columbia Journal of Law & the Arts, especially
Rachel Horn, for their extraordinary editorial support.
© 2020 Jyh-An Lee. This is an open access article distributed under the terms of the Creative
Commons Attribution-NonCommercial-NoDerivatives License, which permits
noncommercial use, distribution, and reproduction, provided the original author and source
are credited.
147LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
148 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
TABLE OF CONTENTS
Introduction ........................................................................................... 149
I. Current U.S.–China IP Debates.......................................................... 151
A. Unfair Technology Transfer ................................................. 152
B. Discriminatory Licensing Restrictions .................................. 154
C. State-Backed Outbound Acquisition of Equity and
Technologies ........................................................................ 157
D. IP Theft by Cyber Intrusion .................................................. 161
II. China’s Responses ........................................................................... 164
A. Foreign Ownership Restrictions............................................ 165
B. Foreign Investment Law ....................................................... 167
C. TIER 2019 and JV Regulations 2019 .................................... 171
D. Trademark Law and Anti-Unfair Competition Law............... 172
E. Phase One Trade Agreement ................................................ 174
III. Analysis .......................................................................................... 175
A. Technological War and China’s Technology Development
Strategy................................................................................ 175
1. China’s IDAR Approach to Technology Development .... 176
2. China’s Technology Development Plans and IP .............. 177
3. Innovation Imperative..................................................... 180
B. The Changing Nature of the U.S.–China IP Disputes ............ 182
C. Institutional Competition ...................................................... 184
D. Legal Bases for Claiming Unfair IP Practices ....................... 187
1. National Security Review ............................................... 188
2. Subsidy .......................................................................... 191
3. Cyber Intrusion............................................................... 193
IV. Conclusion...................................................................................... 194LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
2020] SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR 149
INTRODUCTION
To win the commanding heights of the 21st century economy, Beijing has directed its
bureaucrats and businesses to obtain American intellectual property—the foundation
of our economic leadership—by any means necessary. Beijing now requires many
American businesses to hand over their trade secrets as the cost of doing business in
China. It also coordinates and sponsors the acquisition of American firms to gain
ownership of their creations. Worst of all, Chinese security agencies have
masterminded the wholesale theft of American technology—including cutting-edge
military blueprints. And using that stolen technology, the Chinese Communist Party is
turning plowshares into swords on a massive scale. . . . We’ll continue to take action
against Beijing until the theft of American intellectual property ends once and for all.
And we will continue to stand strong until Beijing stops the predatory practice of forced
technology transfer. We will protect the private property interests of American
enterprise.
—Mike Pence, Vice President of the United States1
The US has many structural problems of its own, but it always regards other countries
as a scapegoat for its own problems and makes unwarranted charges. The US accuses
China of IP theft and . . . [forced] technology transfer, which is a gross distortion of
history and reality. During China’s reform and opening up, many foreign companies
conducted sound technical cooperation based on their own interests with Chinese
companies, which is typical market contract behavior and foreign companies received
substantial returns, as is known to all. The US ignored all those basic facts and placed
blame on China, which is a denial of property right, credit awareness, spirit of contract
and market rules.
—Gao Feng, Spokesman of Ministry of Commerce, People’s Republic of China2
The trade tension between the world’s two largest economies, the United States
and China, has escalated to a significant degree over the past two years, drawing
extensive international attention. The Trump administration has adopted a hardline
China policy, with a rising tide of animosity in the United States toward China since
at least early 2018.3 Among other points of contention, intellectual property (“IP”)
issues have primarily been driving the most recent trade dispute between the two
countries. 4 The conflict has escalated since the spring of 2018, when President
Trump indicated his intention to impose sanctions on China under Section 301 of the
1. Mike Pence, Remarks by Vice President Pence on the Administration’s Policy Toward China,
WHITEHOUSE.GOV (Oct. 4, 2018), https://perma.cc/VJ6T-ALKU.
2. Regular Press Conference of Ministry of Commerce, MINISTRY COM. CHINA (June 21, 2018),
https://perma.cc/R6CY-3APB.
3. See, e.g., Sahashi Ryo, Keeping the Lid on US-China Trade Tensions, NIPPON (Feb. 7, 2019),
https://perma.cc/3GU2-B6P6.
4. See, e.g., Rachel Brewster, Analyzing the Trump Administration’s International Trade Strategy,
42 FORDHAM INT’L L. J. 1419, 1423 (2019); see also Jack Rasmus, Trump’s Déjà Vu China Trade War,
9 WORLD REV. POL. ECON. 346, 354 (2018) (stating that technology transfer in China is the main issue in
the trade war); Jason Z. Yin & Michael H. Hamilton, The Conundrum of US-China Trade Relations
Through Game Theory Modelling, 20 J. APPLIED BUS. & ECON. 133, 135 (2018) (stating that China’s IP
practices are among the major flashpoints in the U.S.–China trade war).LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
150 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
Trade Act, in response to China’s controversial IP practices.5
IP issues have played an important part in U.S.–China trade relations, and IP
disputes between these two countries were described as a “war” long before the
current trade war began two years ago. 6 Like many other latecomers to
industrialization, China needs capital flows and technology transfers from the
developed world, as these are essential for the country’s economic growth. 7
Nonetheless, with its rapid economic and technological development, China’s
approach to obtaining IP from U.S. companies has generated extensive attention and
criticism. The White House has asserted that China’s economic growth “has been
achieved in significant part through aggressive acts, policies, and practices that fall
outside of global norms and rules (collectively, ‘economic aggression’).” 8 In
particular, the United States alleges that China’s recent IP and technology strategy
demonstrates this “economic aggression.”
With the swelling trade fractions between these two countries, the very nature of
the IP issues has transformed: from a focus on piracy and counterfeiting in China to
concerns about the alleged systematic theft of high-end technologies from the United
States. Foreign investors have criticized China for adopting coercive policies that
force them to transfer technologies to local companies,9 and western countries have
been increasingly concerned with China’s active approach to obtaining foreign
technologies.10 China’s attitude toward these claims has shifted over the past year.
Initially, the country denied all such allegations, but after several rounds of
negotiations with the United States, China amended its Foreign Investment Law,
Anti-Unfair Competition Law, and Trademark Law, as well as certain regulations
governing the import and export of technologies and Chinese–foreign joint ventures,
in response to the United States’ claims of unfair IP practices.
This Article explores why the United States has adopted an unprecedentedly
strong position on China’s IP practices and whether China’s legislative responses
have appropriately addressed the longstanding IP disagreements between these two
major world economies. More importantly, it addresses the legal and policy
implications of IP issues in the current trade dispute. I wish to make it clear that I do
not aim to provide an exhaustive account of the trade war between these two
countries, nor do I intend to discuss the previous U.S.–China IP disputes from the
past three decades. This Article focuses on the recent IP issues in the trade war that
5. See, e.g., Ryo, supra note 3.
6. See, e.g., GORDON C.K. CHEUNG, INTELLECTUAL PROPERTY RIGHTS IN CHINA 32–33 (2009).
See also Weighou Zhou, Comment, Pirates Behind an Ajar Door, and an Ocean Away: U.S.–China WTO
Disputes, Intellectual Property Protection, and Market Access, 25 TEMP. INT’L & COMP. L.J. 139, 140–
41 (2011) (“When it comes to [intellectual property rights], disputes or even threats of sanctions have
become the norm during U.S.–China trade talks.”).
7. See, e.g., Assafa Endeshaw, A Critical Assessment of the U.S.–China Conflict on Intellectual
Property, 6 ALB. L.J. SCI . & TECH. 295–96 (1996).
8. WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, HOW CHINA’S ECONOMIC AGGRESSION
THREATENS THE TECHNOLOGIES AND INTELLECTUAL PROPERTY OF THE UNITED STATES AND THE
WORLD (2018), https://perma.cc/H6G9-5M38.
9. See infra Part I.A and Part I.B.
10. See infra Part I.C and Part I.D.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
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are relevant to the two powers’ overall economic relations and longtime discussions
on IP protection and practices.
This Article proceeds as follows. Part I illustrates the current U.S. claims against
China in the trade war regarding unfair IP practices. The Office of the United States
Trade Representative (“USTR”) identified four categories of China’s contentious IP
practices in 2018, namely: unfair technology transfer, discriminatory licensing
restrictions, state-backed outbound acquisition of equity and technologies, and IP
theft by cyber intrusion. The USTR asserted that each category of China’s IP
practices had been unreasonably detrimental to the U.S. economy.
Part II examines China’s recent legal reforms in response to the U.S. claims
regarding unfair IP practices. In addition to lifting foreign ownership restrictions,
China enacted the Foreign Investment Law to forbid forced technology transfer. It
also amended its Trademark Law and Anti-Unfair Competition Law to strengthen IP
protection. Nonetheless, these reforms still fail to address some of the concerns
raised by the USTR, particularly cyber intrusions and state-backed outbound
investments in high-tech companies and IP. Additionally, some foreign investors
doubt whether China is really determined to eliminate unfair IP practices via the
enforcement of these new laws.
Part III provides novel analysis of the IP issues in the recent trade war. This trade
war is partly a result of the technological competition between the two countries.
One may pessimistically believe that the IP trade war is inevitable because both
countries need to pursue their strategic interests in terms of technology and
innovation. I contend that the central issue of the IP disputes between these two
counties has shifted, from China’s inactive enforcement of U.S. companies’ IP to its
active involvement in acquiring IP and confidential information from U.S.
companies. Furthermore, China’s approach to acquiring new technologies from the
western world has shifted from low-end imitation to obtaining advanced technologies
through corporate control. I also argue that the current trade war represents not only
the dual economic and technological rivalry between these two countries but also,
more importantly, the competition between two different institutions. The United
States has seriously contemplated the best way to interact with China’s idiosyncratic
political economy—an economy in which the state is intertwined with both a political
party and the country’s major economic sectors. Finally, I contend that IP law may
not be the only nor the best approach to solving these issues. Given the wide range
of the issues identified by the USTR and the increasingly active role played by the
Chinese government in international economic activities, public international law
might be an appropriate venue for coping with disagreements associated with unfair
IP practices.
I. CURRENT U.S.–CHINA IP DEBATES
On August 14, 2017, U.S. President Donald Trump issued a memorandum to the
USTR stating that:
China has implemented laws, policies, and practices and has taken actions related to
intellectual property, innovation, and technology that may encourage or require theLEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
152 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
transfer of American technology and intellectual property to enterprises in China or that
may otherwise negatively affect American economic interests. These laws, policies,
practices, and actions may inhibit United States exports, deprive United States citizens
of fair remuneration for their innovations, divert American jobs to workers in China,
contribute to our trade deficit with China, and otherwise undermine American
manufacturing, services, and innovation.11
President Trump instructed the USTR to “determine, consistent with section 302(b)
of the Trade Act of 1974 (19 U.S.C. 2412(b)), whether to investigate any of China’s
laws, policies, practices, or actions that may be unreasonable or discriminatory and
that may be harming American intellectual property rights, innovation, or technology
development.”12 This 2017 memorandum led to the USTR’s extensive investigation
of China’s IP practices and consequently initiated the recent U.S. IP war against
China. On March 22, 2018, the USTR published a Section 301 Report detailing U.S.
concerns regarding China’s IP practices, in accordance with Section 301 of the Trade
Act of 1974.13 With the increasingly fierce trade disputes between the two countries,
the USTR published another report on China’s controversial IP practices on
November 20, 2018.14 This section provides an overall picture of the major U.S.
criticisms regarding China’s IP system.
A. UNFAIR TECHNOLOGY TRANSFER
Many developing countries have incentive schemes to attract foreign direct
investments (“FDI”), with the goal that such investments would benefit the
technological capabilities of the host country. 15 As a result, these developing
countries, more often than not, use regulations or other policy tools to press foreign
firms to share their technologies with domestic actors in exchange for market
11. Addressing China’s Laws, Policies, Practices, and Actions Related to Intellectual Property,
Innovation, and Technology, 82 Fed. Reg. 39,007 (Aug. 17, 2017).
12. Id.
13. OFFICE OF THE U.S. TRADE REPRESENTATIVE, FINDINGS OF THE INVESTIGATION INTO CHINA’S
ACTS, POLICIES AND PRACTICES RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND
INNOVATION UNDER SECTION 301 OF THE TRADE ACT OF 1974 5–6 (Mar. 22, 2018), https://perma.cc/
6ELQ-42VZ [hereinafter USTR, 2018 SECTION 301 REPORT].
14. OFFICE OF THE U.S. TRADE REPRESENTATIVE, UPDATE CONCERNING CHINA’S ACTS, POLICIES
AND PRACTICES RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND INNOVATION
(Nov. 20, 2018), https://perma.cc/A4JE-XHZ6 [hereinafter USTR, UPDATE CONCERNING CHINA’S ACTS,
POLICIES AND PRACTICES].
15. See, e.g., Xiaolan Fu & Carlo Pietrobelli, The Role of Foreign Technology and Indigenous
Innovation in the Emerging Economies: Technological Change and Catching-Up, 39 WORLD DEV. 1204,
1208 (2011); see also Daniel Gervais, TRIPS and Development, in INTELLECTUAL PROPERTY, TRADE AND
DEVELOPMENT 3, 54 (Daniel Gervais ed., 2007) (“In certain countries [technology transfer and FDI] have
become major stepping stones for domestic innovation.”); Bernard M. Hoekman, Keith E. Maskus &
Kamal Saggi, Transfer of Technology to Developing Countries: Unilateral and Multilateral Policy
Options, in GLOBALIZING INFORMATION: THE ECONOMICS OF INTERNATIONAL TECHNOLOGY TRADE
167, 170 (Keith E. Maskus ed., 2014) (“Investment by multinational enterprises . . . may provide
developing countries with more efficient foreign technologies and result in technological spillover.”).LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
2020] SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR 153
access.16 China is no exception. However, China’s approach to technology transfers
from foreign investors has been contentious.17
The USTR and the U.S. Chamber of Commerce claimed that China had used
foreign ownership restrictions to facilitate de facto technology transfers from U.S.
companies to their Chinese partners.18 Such restrictions not only delay the entry of
foreign products into the Chinese market but also facilitate the access of Chinese
companies to foreign technologies and confidential information.19 Although foreign
businesses normally prefer to invest in China through the structure of a wholly-
owned foreign enterprise (“WFOE”),20 China’s Catalogue of Industries for Guiding
Foreign Investment (“Foreign Investment Catalogue 2017”) (外商投资产业指导目
录[2007 年修订])21 and other regulations, such as Special Administrative Measures
(Negative List) for the Access of Foreign Investment (外商投资准入特别管理措施
[负面清单]),22 require foreign companies that seek to invest in certain industries to
enter into cooperative agreements, such as joint venture (“JV”) agreements, with
Chinese partners. For example, according to the Foreign Investment Catalogue
2017, in the exploration and development of both oil and natural gas and medical
institutions, foreign enterprise investors are required to form contractual joint
ventures (“CJV”) or equity joint ventures (“EJV”) with Chinese firms. 23 The
Chinese party must be the controlling shareholder in joint ventures that involve: (1)
the selection and cultivation of new varieties of crops and production of seeds; (2)
the manufacturing of commercial aircrafts; (3) the construction and operation of
nuclear power plants; and (4) basic telecommunications services.24 Moreover, the
Chinese party’s investment cannot be lower than fifty percent in the automobile
manufacturing business, whereas foreign investment cannot exceed fifty percent in
the business of value-added telecommunications services.25 Once a U.S. or foreign
company forms a joint venture with a Chinese company, it has no choice but to
provide both IP and confidential information to the partnering Chinese company.26
Furthermore, according to the USTR’s 2018 Section 301 Report,
the Chinese government uses its administrative licensing and approvals processes to
16. See, e.g., Andrew B. Kennedy & Darren J. Lim, The Innovation Imperative: Technology and
US–China Rivalry in the Twenty-First Century, 94 INT’L AFF. 553, 557 (2018).
17. See, e.g., USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note
14, at 23–24.
18. USTR, 2018 SECTION 301 REPORT, supra note 13, at 19–20, 27.
19. See, e.g., WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 6.
20. USTR, 2018 SECTION 301 REPORT, supra note 13, at 27.
21. See id. at 23–26.
22. 外商投资准入特别管理措施(负面清单)(2019 年版) [Special Administrative Measures
(Negative List) for the Access of Foreign Investment (2019)], Order No. 25 of the National Development
and Reform Commission and the Ministry of Commerce of the People’s Republic of China (June 30,
2019) (China) [hereinafter 2019 Negative List].
23. USTR, 2018 SECTION 301 REPORT, supra note 13, at 26.
24. Id.
25. Id.
26. See, e.g., USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note
14, at 23–27; WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 6.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
154 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
force technology transfer in exchange for the numerous administrative approvals
needed to establish and operate a business in China. . . . China uses discretionary and
non-transparent administrative reviews and licensing processes to pressure technology
transfer or force the unnecessary disclosure of sensitive technical information.27
The White House similarly claims that “Chinese industrial policy features a wide
range of coercive and intrusive regulatory gambits to force the transfer of foreign
technologies and IP to Chinese competitors, often in exchange for access to the vast
Chinese market.”28 Such findings are supported by surveys conducted by the U.S.–
China Business Council, 29 the American Chamber of Commerce in China, 30 the
American Chamber of Commerce in Shanghai, 31 and the European Chamber of
Commerce in China.32 Although top Chinese leaders have repeatedly promised to
end this practice, the United States and other foreign partners indicate that it remains
active. 33 Moreover, during administrative approval procedures, many foreign
investors are required to share confidential information relevant to proprietary
technology with government officials.34 Such practices have significantly increased
the IP infringement risk for foreign investors. This so-called “forced technology
transfer” has been the key IP issue driving tension between the United States and
China in the current trade war.35
B. DISCRIMINATORY LICENSING RESTRICTIONS
The second claim posited by the United States is that China has restricted foreign
entities in negotiating market-based licensing terms with Chinese companies. 36
Notably, China imposes mandatory contract terms for contracts in which one party
is a foreign licensor, and these mandatory terms discriminate against foreign IP
owners.37 According to the USTR’s 2018 Section 301 Report,
27. USTR, 2018 SECTION 301 REPORT, supra note 13, at 19–22; see also WHITE HOUSE OFFICE OF
TRADE & MFG. POLICY, supra note 8, at 6–7 (similarly describing China’s discriminatory approval process
to force the transfer of technologies and IP).
28. WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 5.
29. USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note 14, at 23.
30. WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 5; USTR, 2018 SECTION 301
REPORT, supra note 13, at 22–23.
31. USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note 14, at 23.
32. Julie Wernau, Forced Tech Transfers Are on the Rise in China, European Firms Say, WALL
ST. J. (May 20, 2019), https://perma.cc/4G3J-CF2C.
33. See, e.g., WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 6.
34. See, e.g., USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note
14, at 25.
35. See, e.g., Wernau, supra note 32 (“Forced technology transfer is a central sticking point in the
continuing U.S.–China trade fight.”); Brewster, supra note 4, at 1423; Karen Yeung & Sidney Leng, US-
China Trade War: Can China Meet US Demands on IP Theft and Forced Technology Transfer, S. CHINA
MORNING POST (Feb. 25, 2019), https://perma.cc/G2X6-AES4 (“One of the primary demands from the
United States is for Beijing to strengthen intellectual property protection and stop forcing the transfer of
technology.”).
36. USTR, 2018 SECTION 301 REPORT, supra note 13, at 48.
37. See generally id. at 48–61.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
2020] SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR 155
China’s imposition of mandatory adverse licensing terms is reflected in official
measures that impose a different set of rules for imported technology transfers
originating from outside China, such as from U.S. entities attempting to do business in
China, compared to separate rules for technology transfers occurring between two
domestic companies. The mandatory requirements for importation of foreign
technology are discriminatory and clearly more burdensome than the domestic
requirements . . . These restrictions benefit domestic entities at the expense of foreign
competitors, including U.S. competitors, because the mandatory terms are only imposed
on technology import contracts and do not govern technology contracts between two
domestic parties.38
These discriminatory licensing restrictions mostly appear in the Regulations of the
People’s Republic of China on the Administration of the Import and Export of
Technologies (“TIER 2011”) and the Regulations for the Implementation of the Law
of the People’s Republic of China on Chinese Foreign Equity Joint Ventures (“JV
Regulations 2014”).39 For instance, Article 24(3) of the TIER 2011 provided that the
licensor (normally a foreign entity for a technology import contract) was liable for
any claims of “infringing [a third party’s] lawful rights” made against the licensee
resulting from the use of the licensed or transferred technology.40 Parties were not
allowed to negotiate otherwise.41 Article 27 of the TIER 2011 mandated that, as
between the licensor and licensee, all improvements belonged to the party making
the improvement.42 Article 29 of the TIER 2011 restricted the terms of technology
import contracts by prohibiting a number of clauses.43 In particular, Article 29(3)
provided that a technology import contract could not contain clauses restricting the
transferee from improving the technology supplied by the supplying party, or
restricting the receiving party from using the improved technology. 44 This
mandatory provision enabled the Chinese licensee to own severable improvements
without a license from the U.S. licensor.45
Another example is Article 43 of the JV Regulations 2014, which stipulated that
the term of the technology transfer agreement was normally limited to ten years46—
however, the Chinese joint venturer (the technology importer) could continue to use
38. Id.
39. See id. at 48–49.
40. Regulations of the People’s Republic of China on the Administration of the Import and Export
of Technologies (promulgated by the St. Council, Dec. 10, 2001, effective Jan. 1, 2002, amended Jan. 8,
2011), art. 24(3) (Chinalawinfo). The TIER 2011 provisions discussed in this paragraph were amended in
March 2019, see infra Part II.B.
41. Id.
42. Id. art. 27.
43. Id. art. 29.
44. Id. art. 29(3).
45. USTR, 2018 SECTION 301 REPORT, supra note 13, at 49–50.
46. Regulations for the Implementation of the Law of the People’s Republic of China on Chinese
Foreign Equity Joint Ventures (promulgated by the St. Council, Sept. 20, 1983, effective Sept. 20, 1983,
amended Feb. 19, 2014), art. 43(2)(iii) (Chinalawinfo). This provision was subsequently removed, see
infra Part II.C.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
156 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
the subject technology even after the agreement expired. 47 Article 41 of the JV
Regulations 2014 provides that the technology introduced by JVs must be
“applicable and advanced, such that the JV’s products generate significant social and
economic benefits in the domestic market or are competitive in the international
market.”48 That article could operate together with Article 4(3) of the JV Regulations
2014, which provides that government authorities may not approve an application
establishing a JV if the project “is not in conformity with the development of China’s
national economy.” 49 The USTR asserts that Chinese officials may use this
requirement “to pressure foreign firms to transfer the latest and most advanced
versions of their technologies, restricting their freedom to deploy the technology as
they choose, and notwithstanding any intellectual property infringement concerns the
firm may have.”50
However, where a technology transfer agreement is entered into by two domestic
parties, the parties have the freedom to negotiate the licensing terms with one
another. Similar restrictions in the TIER 2011 and JV Regulations 2014 do not apply
to technology transfers in purely domestic JVs. Instead, according to Article 354 of
the PRC Contract Law, “[t]he parties to a technological transfer contract may, in
accordance with the principle of mutual benefit, stipulate the method for sharing any
subsequently improved technological result obtained from the patent exploitation or
utilization of the technical know-how.”51
In March 2018, the United States filed a request for consultations with China in
the WTO, alleging that China’s TIER 2011 and JV Regulations 2014 established
discriminatory technology licensing.52 The dispute advanced to the panel stage in
January 2019. The United States indicated that these restrictions violated Article
3(1) (national treatment) and Article 28 (exclusive rights conferred) of the
Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).53
On June 3, 2019, the United States requested that the panel suspend its proceedings
until December 31, 2019.54 On June 12, 2019, the panel informed the WTO Dispute
47. Id. art. 43(2)(iv).
48. Id. art. 41.
49. Id. art. 4(3).
50. USTR, 2018 SECTION 301 REPORT, supra note 13, at 50.
51. 中华人民共和国合同法 [Contract Law of the People’s Republic of China] (promulgated by
the Nat’l People’s Cong., Mar. 15, 1999, effective Oct. 1, 1999), art. 354 (Westlaw China). See also
USTR, 2018 SECTION 301 REPORT, supra note 13, at 53 (“The PRC Contract Law also provides a default
position for parties to domestic technology transfer agreements such that, should the parties fail to agree
on how to determine ownership of any improvements, or if the contractual language regarding
improvements is vague, then the default is that neither party owns any improvement made by the other
party to the contract. This default provision only provides a non-mandatory backstop position for
technology transfer contracts, as well as a position from which to negotiate such contracts, yet such
flexibility is only available to companies transferring technology domestically.”).
52. China—Certain Measures Concerning the Protection of Intellectual Property Rights, Request
for Consultations by the United States, WTO (Mar. 23, 2018), https://perma.cc/55UP-FCK2.
53. China—Certain Measures Concerning the Protection of Intellectual Property Rights, Request
for Consultations by the European Union, DS542, WTO (June 1, 2018), https://perma.cc/29HH-CR3A.
54. Id.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
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Settlement Body of its decision to grant the request made by the United States and
to suspend its work.55 This new development suggests that the two countries have
started to negotiate to resolve this issue, which has been reflected in the 2019
amendments of the TIER and JV Regulations.56
The United States is not the only trading partner that has raised the issue of
China’s discriminatory licensing restrictions. Japan’s Ministry of Economy, Trade,
and Industry expressed the same concerns in its 2016 Annual Compliance Report.57
In June 2018, the European Union requested consultations in the WTO over China’s
discriminatory IP restrictions in the TIER 2011 and JV Regulations 2014.58 Similar
to the U.S. claims mentioned above,59 the main argument of the European Union is
that these restrictions violate a number of China’s treaty obligations, particularly its
WTO Accession Protocol and Article 3(1) (national treatment) and Article 28
(exclusive rights conferred) of the TRIPS.60
C. STATE-BACKED OUTBOUND ACQUISITION OF EQUITY AND TECHNOLOGIES
Investing in foreign technologies has been China’s main strategy for economic
and technological development.61 The USTR has criticized the Chinese government
for using state-owned enterprises (“SOEs”) and outbound foreign direct investment
(“OFDI”) to shape and facilitate technology-focused investments in the United States
and Europe through the acquisition of equity and IP in seven technology sectors,
namely: automotive, aviation, electronics, energy, health and biotechnology,
information and communication technology, and industrial machinery (including
robotics).62 According to the USTR,
the Chinese government directs and unfairly facilitates the systematic investment in,
and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-
edge technologies and . . . IP . . . and generate large-scale technology transfer in
industries deemed important by state industrial plans. The role of the state in directing
and supporting this outbound investment strategy is pervasive . . . . The market-
distorting acts, policies, and practices of the Chinese government in technology-focused
sectors impose significant costs and risks on U.S. industry. They undermine the ability
of U.S. technology companies to innovate and adapt, and threaten the long-term
competitiveness of U.S. industry.63
The USTR has also expressed serious concerns regarding Chinese venture
55. Id.
56. See infra Part II.C.
57. USTR, 2018 SECTION 301 REPORT, supra note 13, at 54.
58. China—Certain Measures on the Transfer of Technology, Request for Consultations by the
European Union, DS549, WTO (June 6, 2018), https://perma.cc/29HH-CR3A.
59. See supra text accompanying note 53.
60. China—Certain Measures on the Transfer of Technology, Request for Consultations by the
European Union (Revision), DS549 Rev.1, WTO (Jan. 8, 2019), https://perma.cc/DH5W-GW6J.
61. See, e.g., Kennedy & Lim, supra note 16, at 563.
62. USTR, 2018 SECTION 301 REPORT, supra note 13, at 62–66, 101–47.
63. Id. at 65–66.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
158 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
capitalists’ heavy investment in U.S. sectors, such as artificial intelligence, robotics,
augmented and virtual reality, and financial technologies.64 The USTR has asserted
that:
[a]vailable evidence indicates that the Chinese government has created and supported a
web of entities that have established a presence in Silicon Valley and other U.S.
technology centers to invest in high-technology U.S. startups and engage in a variety of
[venture capital] investment related activities, to further the industrial policy goals of
the Chinese government.65
Although equity investments and IP acquisitions are normal transactions in the
market economy, what concerns the United States most is that such technology-
focused OFDI in China is not driven by market factors.66 These investments are,
instead, guided and supported by the state.67 The U.S. Chamber of Commerce has
similarly expressed that Chinese outbound investments and acquisition of foreign
technologies are tied to China’s industrial policy.68 Professors Jeffrey N. Gordon
and Curtis J. Milhaupt call such Chinese acquirers the “national strategic
buyer[s] . . . whose objective is to further the interests of a nation-state in the pursuit
of national industrial policy or perhaps national security concerns.”69
The Chinese government has used OFDI to fulfill its “Going Out” strategy and to
speed up the acquisition of core technologies from the western world. 70 The
government has declared, in several official documents—such as the Guiding
Opinion on Promoting International Industrial Capacity and Equipment
Manufacturing Cooperation, released in 2015; 71 the Information and
Communications Industry Development Plan (2016–2020), released in 2016;72 Next
Generation Artificial Intelligence Development Plan, released in 2017;73 and Made
in China 2025, released in 2015 74 —that its strategy of technology development
through international cooperation should focus on international mergers and
acquisitions, equity investment, venture capital, and the establishment of research
and development (“R&D”) centers abroad. The backing of state-owned banks, state-
64. USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note 14, at 42–
43.
65. Id. at 46.
66. USTR, 2018 SECTION 301 REPORT, supra note 13, at 63 (“China’s OFDI is . . . driven by non-
market factors. . . . These factors stem from the Chinese government’s extensive intervention . . . to
achieve industrial policy objectives.”).
67. Id. at 63–66.
68. U.S. CHAMBER OF COMMERCE, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL
PROTECTIONS 23–24 (2017), https://perma.cc/D9VV-GPJQ.
69. Jeffrey N. Gordon & Curtis J. Milhaupt, China as a “National Strategic Buyer”: Toward a
Multilateral Regime for Cross-Border M&A, 2019 COLUM. BUS. L. REV. 192, 198 (2019).
70. USTR, 2018 SECTION 301 REPORT, supra note 13, at 64–70. See also id. at 147 (“China’s acts,
policies, and practices are unreasonable because they are directed and supported by the government, and
unfairly target critical U.S. technology with the goal of achieving dominance in strategic sectors.”).
71. See id. at 69.
72. See id. at 68.
73. See id. at 67.
74. See id. at 79.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
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backed funds, and state-owned capital dividends has financially facilitated this
“Going Out” strategy and the consequent OFDIs.75 As many China experts have
indicated, the party-state can allocate the resources of domestic financial institutions
to fulfill its policy goals when it deems necessary.76
The USTR has claimed that China has used its outbound investment approval
system to implement its strategic goal of acquiring overseas advanced technologies.
Chinese government agencies, such as the National Development and Reform
Commission, the State Administration of Foreign Exchange, and the Ministry of
Commerce, can easily encourage the private sector to invest in the strategic
technology sector by selectively approving their outbound investment applications.77
As a result, the Chinese OFDIs have systematically been made in alignment with
government industrial policies, such as those set forth in Made in China 2025 and
the Belt and Road Initiative.78
Moreover, the USTR’s 2018 Section 301 Report specifically pointed out that the
Chinese government and the Chinese Communist Party (“CCP”) have directed SOEs
to undertake various overseas investments in order to fulfill China’s industrial policy
goals. 79 The USTR’s claim can be understood in the context of China’s unique
political economy, which relies on the relationship between the party-state and SOEs.
The government and CCP have controlled SOEs’ management and investment
decisions via the State Council’s State-owned Assets Supervision and
Administration Commission (“SASAC”). 80 Each level of the government has
replicated this arrangement and has its own SASAC, subject to central SASAC
supervision.81 Top SOE executives are normally CCP members, rotating between
SOE and government positions and subject to the CCP Organization’s review.82
Additionally, the government and the CCP can guide the decisions of private
companies via the CCP committees in those enterprises, which is a unique corporate
governance structure in China.83 The government has also influenced the outbound
investment decisions of private enterprises through the above-mentioned
administrative approval systems,84 the available investment finance,85 and pressure
from the CCP.86
75. Id. at 65, 67, 69, 80, 88, 90–94.
76. See, e.g., Mark Wu, The “China, Inc.” Challenge to Global Trade Governance, 57 HARV.
INT’L L.J. 261, 275 (2016) [hereinafter Wu, China, Inc.].
77. USTR, 2018 SECTION 301 REPORT, supra note 13, at 71–77.
78. Id. at 77.
79. Id. at 80–85.
80. Id. at 81–84; Wu, China, Inc., supra note 76, at 272–73.
81. Wu, China, Inc., supra note 76, at 272.
82. USTR, 2018 SECTION 301 REPORT, supra note 13, at 84.
83. See, e.g., WHITE HOUSE OFFICE OF TRADE & MFG. POLICY, supra note 8, at 11.
84. See supra text accompanying notes 77–78.
85. USTR, 2018 SECTION 301 REPORT, supra note 13, at 87–89.
86. Id. at 87–89. See also id. at 103 (“Even when undertaken by companies in which the
government does not own an observable controlling stake, the transactions identified are frequently guided
and directed by the state. CCP members often act as board members and officers of these companies, and
are responsive to state directives.”)LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
160 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2
A major challenge to substantiating such claims lies in the fact that some of the
controversies seem to result from transactions or actions between private parties. For
example, the acquisitions of shares and IP are typically viewed as market activities
governed by private law regulations, instead of as the subjects of trade disputes.
Since the United States has argued that these transactions are part of China’s unfair
IP practices, it needs to prove that the party-state has planned and directed these
transactions in an unfair way.87 However, it is never easy to prove the intent of a
Chinese government policy with respect to these transactions in order to show
causation. Nor is it simple to prove that a Chinese acquirer has either purely
economic motives in the transaction or national strategic ones.88 A unit of the U.S.
Department of Defense has also described the difficulties in seeing China’s overall
technology agenda from individual transactions:
[China’s] principal vehicles [for technology transfer] are investments in early-stage
technologies as well as acquisitions. When viewed individually, some of these practices
may seem commonplace and not unlike those employed by other countries. However,
when viewed in combination, and with the resources China is applying, the composite
picture illustrates the intent, design and dedication of a regime focused on technology
transfer at a massive scale.89
The current approach adopted by the United States is to assume that most Chinese
parties involved in the transactions are SOEs, which are controlled by the party-
state—therefore, the conclusion is that all transactions were made as part of a
Chinese conspiracy. 90 This approach is similarly adopted in the USTR’s claims
concerning cyber intrusions initiated by Chinese companies.91 While this approach
is plausible for understanding the operation of the party-state and state capitalism in
China, it is still controversial for determining “which Chinese enterprises, banks, and
entities should be considered an extension of the state.” 92 Therefore, it is not
surprising that the Chinese government has officially claimed that all outbound
investments made by Chinese enterprises are a natural result of business
globalization, instead of a government scheme.93 Furthermore, private transactions
87. Cf. Wu, China, Inc., supra note 76, at 265 (noting the difficulties in determining “whether an
entity is associated with the state” under WTO rules).
88. See, e.g., Gordon & Milhaupt, supra note 69, at 198.
89. MICHAEL BROWN & PAVNEET SINGH, DEF. INNOVATION UNIT EXPERIMENTAL, CHINA’S
TECHNOLOGY TRANSFER STRATEGY: HOW CHINESE INVESTMENTS IN EMERGING TECHNOLOGIES
ENABLE A STRATEGIC COMPETITOR TO ACCESS THE CROWN JEWELS OF U.S. INNOVATION 16 (2018),
https://perma.cc/F6MM-WAQL.
90. See, e.g., USTR, 2018 SECTION 301 REPORT, supra note 13, at 80–81 (citing Xi Jinping’s
description of “the role of SOEs as extensions of the Party-state, and clarified that SOEs are ‘important
forces to implement decisions of the CCP and ‘major strategies,’ such as industrial ‘Going Out’ strategies
to ‘enhance overall national power, economic and social development, and people’s wellbeing’”).
91. Id. at 168 (citing the U.S. Department of Justice’s indictment asserting Guangzhou Bo Yu
Information Technology (Boyusec), a Chinese firm involved in cyber intrusions against three U.S. firms,
had links to the Chinese government).
92. Wu, China, Inc., supra note 76, at 301.
93. See, e.g., INFO. OFFICE OF THE STATE COUNCIL IN CHINA, THE FACTS AND CHINA’S POSITIONLEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
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conducted outside China are made voluntarily by both contracting parties. The U.S.
companies that sold shares or IP to Chinese companies did not enter into deals as a
result of any coercion, nor were these transactions subject to Chinese laws. Even if
the Chinese party in such agreements was an SOE, the Chinese government or other
SOEs could not unilaterally make these transactions happen without the agreement
of the U.S. companies. Therefore, China could argue that it should not be held solely
liable for its outbound investments in U.S. companies and IP. Part of the USTR’s
explanation of the unfairness is that:
[f]oreign companies become more susceptible to Chinese acquisitions because of the
difficult investment and market access environment in China; and . . . Chinese firms are
willing to bear losses in foreign markets both for their investments and sales as a cost
of acquiring foreign proprietary technology, in part because the Chinese government
will make up a portion of their loss.94
This explanation seems plausible from a reciprocal perspective. However, it
confusingly mingles state-backed acquisition with market access and other legal
concepts. While China’s state-backed acquisition of foreign IP and equity may
constitute an unfair trade practice, it is not directly relevant to the country’s
restriction of foreign investment. In other words, the fact that a U.S. firm has
difficulties in accessing the Chinese market does not necessarily mean that it would
be “more susceptible to Chinese acquisitions.”95 After all, this U.S. firm can always
develop revenue models and investment portfolios in jurisdictions other than China.
Furthermore, the legal issue arising from the fact that “Chinese firms are willing to
bear losses . . . in part because the Chinese government will make up a portion of
their loss”96 lies in whether certain forms of government subsidies are prohibited by
the WTO,97 which is a separate issue to be discussed.98
D. IP THEFT BY CYBER INTRUSION
The United States has consistently claimed that that the Chinese government
conducts and facilitates cyber intrusion into the U.S. network to acquire confidential
information from U.S. firms, including “trade secrets, technical data, negotiating
positions, and sensitive and proprietary internal communications.”99 The USTR’s
2018 Section 301 Report asserted that “cyber theft [has become] one of China’s
preferred methods of collecting commercial information because of its logistical
ON CHINA–US TRADE FRICTION 38–39 (2018), https://perma.cc/FYF3-X4MY.
94. USTR, 2018 SECTION 301 REPORT, supra note 13, at 149.
95. Id.
96. Id.
97. Agreement on Subsidies and Countervailing Measures art. 5, Apr. 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1A, 1869 U.N.T.S. 14 [hereinafter SCM
Agreement].
98. See infra text accompanying notes 334–349.
99. USTR, 2018 SECTION 301 REPORT, supra note 13, at 153.LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020) 162 COLUMBIA JOURNAL OF LAW & THE ARTS [43:2 advantages and plausible deniability.” 100 Although President Xi Jinping and President Barack Obama reached a consensus regarding cyber-enabled theft of IP and confidential business information in September 2015,101 the United States has continuously detected cyber intrusions from China targeting American firms.102 The claims made by the USTR are primarily based on reports issued by professional cybersecurity or Internet companies, such as McAfee, Verizon, and Mandiant,103 and on the U.S. Department of Justice (“DOJ”) indictment against five officers of China’s People’s Liberation Army General Staff Department, Third Department (“3PLA”) for cyber intrusions and economic espionage against U.S. companies.104 In its 2013 report, the cybersecurity firm Mandiant specifically pointed out that 3PLA, normally known by its Military Unit Cover Designation as Unit 61398, was then staffed by hundreds or even thousands of people who had stolen data from at least 141 organizations, 115 of which were from twenty major business sectors in the United States. 105 The USTR has asserted that many U.S. victims were from industries that China had identified as strategic priorities.106 In May 2014, the DOJ charged five 3PLA officers with cyber intrusions into the computer systems of six American firms: Westinghouse Electric Company, SolarWorld Americas, Inc., United States Steel Corporation, Allegheny Technologies, Inc., Alcoa Inc., and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Services Workers International Union.107 According to the indictment, the cyber intrusions were conducted when each of the victims was dealing with its Chinese business, and each firm acted in an industry that the Chinese government had prioritized for development.108 The DOJ alleged that the defendants hacked into the victims’ computer systems to steal confidential information for the victims’ Chinese competitors, including SOEs.109 The DOJ also stated that Chinese firms, including SOEs, had hired 3PLA to provide information technology services, which the DOJ suspected included stealing confidential information from their U.S. competitors.110 The USTR further claims that China conducts physical IP theft together with cyber 100. Id. 101. See, e.g., Kennedy & Lim, supra note 16, at 570. 102. USTR, 2018 SECTION 301 REPORT, supra note 13, at 154. 103. Id. at 154–57. 104. Id. at 157–63; see also Jyh-An Lee, The Red Storm in Uncharted Waters: China and International Cybersecurity, 82 UMKC L. REV. 951, 955 (2014) [hereinafter Lee, China and International Cybersecurity] (noting that “[t]he indictment was the first criminal charge against foreign officers in the United States”). 105. USTR, 2018 SECTION 301 REPORT, supra note 13, at 155–57. 106. Id. at 156. 107. Id. at 157. 108. Id. 109. Id. at 157–58. 110. Id. at 158. See also id. at 164 (“[A]ccording to U.S. government information, China National Offshore Oil Corporation (CNOOC), a state-owned enterprise, submitted formal requests to Chinese intelligence services seeking intelligence information on several U.S. oil and gas companies and on U.S. shale gas technology.”).
LEE, SHIFTING IP BATTLEGROUNDS IN THE U.S.–CHINA TRADE WAR, 43 COLUM. J.L. & ARTS 147 (2020)
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intrusions via insiders.111 An increasing number of cases in the United States involve
Chinese government agents recruiting employees at target companies to transfer
commercially confidential information to China.112
In summary, the USTR has claimed that the Chinese government has conducted
and supported cyber-enabled theft and intrusions into the commercial networks of
U.S. companies. This claim is in line with the White House’s accusation that “China
engaged in cyber-enabled economic espionage and trillions of dollars of intellectual
property theft.”113 This line of allegations reveals U.S. concerns that hacking and
stealing American IP has become an important strategy by which China seeks to
maintain its economic growth and that China’s cyber capability poses a serious threat
to the American economy. Nevertheless, there is always an “attribution problem”
associated with determining the origin of cyber intrusions. 114 Legal questions
concerning attribution are also complicated technical questions.115 It is exceedingly
difficult to track the real location of hackers because they may route through “cyber
safe havens” or multiple machines in multiple countries. 116 In other words,
sophisticated hackers can easily mask their identity and location, and even mislead
attribution investigations with little cost.117 It is also difficult to establish whether a
state is behind a cyberattack. 118 Therefore, some experts describe attribution as
“perhaps the most difficult problem” in cyberspace.119 Even if proof of attribution
is possible, it requires enormous amounts of time, expertise, investigation, and
investment in other resources.120 Therefore, any efforts to hold the cyber intruders
111. USTR, UPDATE CONCERNING CHINA’S ACTS, POLICIES AND PRACTICES, supra note 14, at 15–
22.
112. Id. at 15–19.
113. THE WHITE HOUSE, NATIONAL CYBER STRATEGY OF THE UNITED STATES OF AMERICA 2
(2018), https://perma.cc/HJ6Q-XBCV.
114. See, e.g., Lee, China and International Cybersecurity, supra note 104, at 964; Amir Lupovici,
The “Attribution Problem” and the Social Construction of “Violence”: Taking Cyber Deterrence
Literature a Step Forward, 17 INT’L STUD. PERSP. 322, 330 (2016); Lorraine Finlay & Christian
Payne, The Attribution Problem and Cyber Armed Attacks, 113 AM. J. INT’L L. UNBOUND 202, 203
(2019); Delbert Tran, Note, The Law of Attribution: Rules for Attributing the Source of a Cyber-Attack,
20 YALE J. L. & TECH. 376, 386–87 (2018); see also Kennedy & Lim, supra note 16, at 567 (“[A]ttribution
[of an act of cyber espionage] to a particular actor or even a particular country is an inherently uncertain
enterprise.”).
115. See, e.g., Christian Payne & Lorraine Finlay, Addressing Obstacles to Cyber-Attribution: A
Model Based on State Response to Cyber-Attack, 49 GEO. WASH. INT’L L. REV. 535, 556–57 (2017).
116. Lee, China and International Cybersecurity, supra note 104, at 964; Finlay & Payne, supra
note 114; see also Tran, supra note 114, at 389 (“[U]sers can employ a number of techniques and program
applications to hide their trail of online activity. To the extent that any user’s IP address is logged in any
activity that they perform on the internet, users have the option of using proxy servers or onion-routing
tools such as Tor to mask their IP addresses when acting online.”).
117. Finlay & Payne, supra note 114, at 203.
118. See, e.g., Lupovici, supra note 114, at 329; Finlay & Payne, supra note 114, at 203; Tran, supra
note 114, at 390.
119. Tran, supra note 114, at 387 (quoting P.W. SINGER & ALLAN FRIEDMAN, CYBERSECURITY AND
CYBERWAR: WHAT EVERYONE NEEDS TO KNOW 73 (2014)).
120. See, e.g., Jon R. Lindsay, Tipping the Scales: The Attribution Problem and the Feasibility of
Deterrence Against Cyberattack, 1 J. CYBERSECURITY 53, 56–58 (2015).You can also read
